We all know how beneficial it is to have some money to put aside each month, however, is simply depositing it in a bank savings account the best choice? When you look at the low interest rates that most banks offer, the answer is a resounding no!
So, what is the best way to save and grow your capital? While it is wise to have some easily accessible cash in a savings account, it is also smart to use a portion of your savings to invest in businesses. Whether it is a local business or a major company that you feel is likely to grow, investing in businesses over the medium to long term will produce a much better return than just putting your money on deposit.
What are the best ways to invest in business?
The first thing you should do is read up on investing and to study how the financial markets work. This will help you to spot the best businesses to invest in and pin down which business sectors you think will give a good return.
Once you have done that, just how do you go about actually putting the money you have set aside into a company?
Peer to peer lending
Also known as P2P lending, this popular method involves lending money to a new business that needs funding to get started. Well-known online P2P sites like Lendy are easy to use, safe and reliable.
Once you have found an investment opportunity you like on a P2P platform, a few clicks allows you to invest the amount you want. As with a normal loan, you would then expect to be paid back over the period of the loan with any agreed interest on top.
Another route you could take in your investment journey is to invest directly into a business you know personally. Let’s say for example your sister is setting up a new café or a friend needs some funding for his new startup idea. By putting up the money they need for a stake in their business, you will be helping them out and also putting your money to work. Naturally, any returns will depend on how well the business does so be sure to research this fully before parting with any money.
Buy shares on the stock market
Of course, an enduringly popular way to invest money is via the global stock markets. From the London Stock Exchange which is worth almost $5 trillion to others like the NASDAQ, there are many businesses listed there to invest in. Online brokers make it simple to do this as long as you have a PC and a reliable internet connection. You do need to conduct research to identify the best businesses to invest in on an individual basis, however, the time spent is worth it because it can bring great returns if you get it right.
Think about investing in a managed fund
If you do not fancy personally trading in shares, investing in a managed fund may be the answer. The great thing about this kind of investment route is that you leave all the hard work to an expert fund manager. They will find the best businesses to invest in on the stock market and keep an eye on their performance if you decide to go ahead. For many less experienced investors, this can be a smart choice. Look at Unit Trusts and Investment Trusts. For tax-free investment you should consider a Stocks and Shares ISA. They can be very good investments if they are topped up to the maximum allowed each year.
Many people confuse this with P2P lending, but they are totally different. Crowdfunding is facilitated via easy to use online platforms like Kickstarter but does not involve loaning money to a business in need. Instead, you invest money into it for a gift in return for a share of the business. If you gain a share of the business, then you make money if the business performs well. Although this is a bit more involved than P2P lending, the easy-to-use platforms help make it a viable choice.
Pick the right investment path for you
One of the best pieces of advice around investing some spare money is to pick a method that you think will best suit your needs. The element of risk must also be considered. Share prices can fall as well as rise but over the long term stock market investment is considered a reasonably safe bet. Always consider tax efficient investment vehicles because they can significantly increase returns.